What Types of Mergers Are There?

November 17, 2014

Minnesota entrepreneurs and investors who wish to make a new business by combining existing businesses into a more efficient and profitable company may consider seeking a merger with another venture. In general, most mergers can be placed into one of five different categories.

These merger types may be easily understood by the relationship that the two joining companies have to each other. Horizontal mergers involve two corporations that work in the same industry and sell in the same market. The resulting merged company may enjoy improved production efficiency and an increase in market share. A market extension merger describes two companies that sell similar product lines in distinct and separate markets. The combination of the two firms leads to greater market share and product-line consolidation. A product extension merger is a meshing of two companies that serve products that are related to each other inside the same market. The resulting combined company will have a larger product line and bigger customer base. A vertical merger would represent the union of companies that manufacture different components of the same finished product. This combination of companies may lead to more efficient product manufacture and savings in production cost.

Any merger between two enterprises that have no similarities whatsoever is known as a conglomerate. A merger between completely unrelated companies that wish to expand their product line or market is described as a mixed conglomerate merger, whereas firms with no common points whatsoever are combined in pure conglomerate mergers.

Starting a new business or combining existing enterprises requires detailed knowledge of all applicable business law. An attorney may be of assistance in any negotiation that takes place between the two merging companies as their familiarity with the law may help to avoid common pitfalls and mistakes.

Source: MBDA, “5 Types of Company Mergers“, November 13, 2014

This information is general in nature and should not be construed as tax or legal advice.